Railway Minister Mamata Banerjee has sought an extension for the waiver on service tax on railway freight. Finance Minister Pranab Mukherjee had earlier given a tax holiday to the Railways till December 31. Banerjee now wants the tax relief extended to March 31.

Banerjee held a meeting with Mukherjee today at the latters office to demand a full waiver. Later, Banerjee told reporters that Mukherjee has agreed to consider her request. She argued that the Railways finances are in a bad shape and imposition of service tax will have to be passed on to the consumer.

The Finance Ministry had earlier planned to collect around Rs 1,000 crore from service tax on transportation of goods by railways but freight movement on the rail network would not remain attractive if the tax was passed on to transporters.

In the Finance Bill 2010, a service tax of 10 per cent has been levied on service provided in relation to transport of goods by rail with effect from April 1.

In the event of the tax being absorbed by the national transporter, allocations reserved for development purposes would have declined by a third in the current financial year.

Banerjee also told Mukherjee that the Railways was already burdened with the Rs 100 per wagon concession for transportation of foodgrain and kerosene announced in the budget.